Cambridge Family Law Practice

The estranged wife of a wealthy financier has been awarded a share of the profits from a hedge fund established during the marriage, despite the fact that much of its value will depend on market forces at play following their divorce.

The very wealthy couple in question were married for more than 27 years. They finally separated in July 2020, three years after the husband had established a hedge fund business. The funds invested in this business had totalled close to £19 million, with the monies drawn from the couple’s savings and other assets held by both spouses. They put everything except their two properties into the fund. The husband was the majority owner, holding a stake of 62.5 per cent.

During the subsequent divorce proceedings, with much of the hedge fund capital tied up in investments, the estranged couple realised they faced a problem: it was likely to be difficult to sell the hedge fund on as it had no fixed total value. The investments had not matured and so total profits could only be guessed at – any perceived current worth would be based solely on the husband’s perceived expertise in investment.

Nevertheless, the wife insisted that the hedge fund was a shareable asset for the purposes of the divorce, since it had been created during the marriage. She applied, on the basis of a 2002 case, Wells v Wells, for 25 per cent of the husband’s future profits from the hedge fund investments. It was a relatively arbitrary percentage and the husband disputed it, saying she was trying to profit from market conditions after the end of their marriage, in a way that would not be permitted under divorce legislation.

In a family court session at the Royal Courts of Justice, Judge Sir Jonathan Cohen noted the uncertainty of the situation:

“The attempts of the experts to value the [hedge fund] have not advanced the case in terms of outcome. Both agree that the business is unsellable at the moment and only in their oral evidence did it become clear that the figures that they were estimating were simply their best calculation as to the value of the business to [the husband], rather than the value to any third party. In other words, it was a form of capitalisation of a predicted profit share.”

The Judge continued:

“I recognise that it is desirable to settle upon a valuation if such an exercise can be completed, but there is no absolute requirement to do so if it would be no more than a wild guess.”

Nevertheless, he explained, despite the post-marital factors that would have a significant influence on the husband’s profits from the fund, it was a genuine continuation of an initiative that had begun during the marriage – a ‘marital endeavour’ – and therefore it would not be fair for the wife to receive no benefits from the fund in the couple’s divorce. Therefore, Sir Jonathan concluded:

“I have determined that [the wife] should share in [the husband]’s profits to the tune of 17.5% in the years ending 2023, 2024, 2025, and 2026. I have chosen the percentage …which I believe is fair when taken over the whole of the period as reflecting the percentage attributable to the marital endeavour. I have chosen four years because there must be an end point and on [the husband]’s evidence, which I accept, he will by then be into the process of handing over to a successor, which will no doubt include a progressive dilution of his shareholding. In the event of H disposing of his shareholding during this period, W will share to the same extent of 17.5%.”

Tricia Ashton, one of the partners here at Cambridge Family Law Practice, comments: “It’s hard to see how it could ever have been considered fair for the Wife in this case not to share at all in the future ‘value’ of the hedge fund. The 17.5% ‘share’ that the Judge ended up at is clearly instinctive, rather than based on any particular calculation. It’s the nature of family law that sometimes Judges do have to exercise their discretion in this way.”

Read the full ruling here.